Tax Residency
A person is liable for taxes in Bulgaria if they fulfil one or more of the following criteria:
- Have a permanent address in Bulgaria.
- Spend more than 183 days in Bulgaria within any 365 day period ending in the tax year in question.
- Have been assigned abroad by a Bulgarian company or the Bulgarian state.
- Have their “centre of vital interests” in Bulgaria (that is, their personal and economic ties are closer to Bulgaria than any other country)
Residents of Bulgaria are subject to taxes in Bulgaria on their worldwide income and gains.
Non-residents of Bulgaria are taxed on income and gains derived from Bulgarian sources only.
The tax year in Bulgaria is the calendar year (1 January to 31 December). Income Tax
Income is taxed on an arising basis; that is, taxable in the year of receipt, no matter when it was earned. There are no personal allowances available to set against income for tax purposes.
Personal income is taxed at a flat tax rate of 10 percent, with some variations:
- Self-employed income is taxed at a flat rate of 15 percent on net income.
- Dividend income is taxed at 5 percent, and if paid by a Bulgarian company, this is withheld at source.
Bank interest is tax income in Bulgaria at the rate of 10 %.
Real Estate Tax
Owners of real estate in Bulgaria are liable to pay an annual tax on the value of the real estate. The rate varies depending on whether the real estate is used for residential or commercial purposes. The rate for both residential and commercial property is fixed by the local authorities, but is within the 0.15% to 0.30% range. The tax is payable at the beginning of each year. These taxes are usually lower in rural areas.
Both the state property transfer fees and notary taxes are between two and five percent.
VAT (Value Added Tax)
VAT is chargeable on the sale of real estate in Bulgaria at a rate of 20 percent. This is usually included in the purchase price of the property. The standard VAT rate is 20 percent. There is also a reduced rate of 7 percent.
Capital Gains Tax
The rate of tax on capital gains in Bulgaria is a flat rate of 10 percent. Capital gains are usually taxed as income; however the following assets are exempt:
- Any one residential property per year, regardless of when acquired if used as the main home or not, if owned for more than 3 years.
- Two properties which have not been the taxpayer’s main residence, if owned for more than five years.
- Any number of agricultural and forest estates provided they have been owned for at least five years.
- Cars and other road vehicles, aircrafts and vessels owned for at least one year.
- Assets received by gift.
- Certain types of movable property, including shares in a Bulgarian quoted company.
Foreigner residents of Bulgaria
For a foreigner resident disposing of property there may be no tax liability in Bulgaria, but their capital gains tax will be due on the gain (calculated under their country of residence rules).
In Bulgaria, it is not uncommon for the lower valuation of the property used to calculate the local taxes to be put on the title deeds. This is often significantly lower than the purchase price and means that any eventual gain for worldwide purposes will be higher because a lower price was used on this title deed. Thus, individuals often end up paying tax they don’t need to pay.
Inheritance and Gifts Tax
Residents of Bulgaria are liable to inheritance tax on property situated in both Bulgaria and overseas. Non-residents of Bulgaria are liable to inheritance tax on property situated in Bulgaria. It is the recipient who pays the tax. Inheritances received by the surviving spouse and direct relatives are exempt. Brothers, sisters, nieces and nephews who inherit will pay inheritance tax from 0,4 to 0,8 percent on amounts received above BGN 250,000. All other beneficiaries pay inheritance tax at rates from 3,3 do 6,6 percent on amounts received above BGN 250,000.
Gifts tax is payable depending on the relationship between the donor and the done. Spouses and direct line inheritors are an exception. In all other cases the taxes are as follows:
– From 0,4 to 0,8 % for gifts between brothers and sisters and their children, and
– From 3,3 to 6,6 % in all other beneficiaries.
Administration Individual tax returns must be filed, unless the sole source of income is employment income from a Bulgarian company. The due date for submission of tax returns is 30 April following the end of the tax year. Payment of tax is due by 30 April following the tax year. Payment of tax quarterly during the relevant year is required for certain income, with the balance being due by 30 April following the end of the tax year.
Double tax credit relief
Aside from any tax credits granted under the terms of any double tax treaty, Bulgaria gives unilateral tax relief for taxes paid abroad on income which is also taxable in Bulgaria.
The amount of credit available is the lower of the foreign tax paid on the income, or the Bulgarian tax due on that income.
Social security and healthcare contributions
Employees are liable to pay social security contributions at a rate of 13 percent per year. Contributions are payable monthly and are calculated on employment income only, up to a limit of BGN 2, 600 per month.
Employer contributions are generally around 17.3 percent to 22.3 percent.
For professional advice, please contact Kirilova Law & Associates.